Ruralco is tipping strong lamb market activity in 2017 and beyond after reporting a lift in first quarter earnings fuelled by a helpful season, increased live cattle exports and a healthy wool market.
But the big farm services group is also bracing for the cattle market values to subside as Australia’s “overvalued” beef sector re-calibrates to accommodate lower global price trends.
Although re-stocker demand pushed the eastern young cattle indicator (EYCI) above 700 cents last year, Ruralco is budgeting for markets to “retrace towards 500c”.
It also expects the worst of the sales volume availability squeeze will soon pass (assuming a reasonable northern wet season) resulting in a slow rise in Australian herd numbers and stock available for sale and slaughter.
In a market update to the Australian Securities Exchange (ASX) it reported a strong start to its 2016-17 trading year.
Improved farmer confidence and cash flows had helped general merchandise sales, particularly as rainfall in the later part of 2016 spurred on summer crop activity, notably in cotton and rice.
Farm chemicals and pre-season fertiliser sales had jumped, although the company’s water infrastructure service business was slower because the rainy weather was a bit too wet.
“Recent rainfall and the availability of irrigation water are expected to continue the demand for rural supplies products and services,” the agribusiness reported.
Ruralco ended the 2015-16 year with a 69 per cent fall in full-year profits due to a tough summer last year and costs associated with restructuring and culling some live export and water activities.
However, its share price jumped more than nine per cent to $3 early after releasing the optimistic ASX market update – up from last week’s close of $2.75.
The company said live export volumes have grown following the restructure the Frontier International Agri division which now had a solid sales pipeline for this quarter.
Meanwhile, confidence in sheepmeat was high and encouraging flock rebuilding.
With New Zealand’s sheep numbers falling and Australia the only other significant global lamb exporter, Ruralco shareholders have been told sheepmeat is potentially set to be the “agricultural darling of the decade”.
A recent uplift in the wool market was providing “very good returns to growers”, including rising finewool premiums, but the depleted size of the Merino flock was still a challenge.
The company has also finalised its purchase of a half stake in Ausure Consolidated Insurance Brokers for $7.1m and increased its stake in Frontier to 75pc, and 100pc in agencies Territory Rural and South West Victoria’s Saffin Kerr Bowen.
Ruralco, with a staff of about 2000, has 47 fully-owned or joint venture business units spanning livestock, wool and property sales, water and grain broking, financial services and farm data analysis.
Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
